ThyssenKrupp says startup costs of mills in Calvert, Ala., and Brazil to rise

View full sizeA slab of steel is taken into one of the roughing mills Thursday, Sept. 9, 2010 in the hot strip mill at the ThyssenKrupp steel mill in Calvert, Ala. (Press-Register, Bill Starling)

ThyssenKrupp warned Friday that the cost of starting its steel mills in Calvert and Brazil would be higher this year than expected, with losses in the Western Hemisphere rising to the "high" hundreds of millions of euros from the previously announced "medium" hundreds of millions range.

The announcement came as ThyssenKrupp posted a profit of 142 million euros ($192 million) in the first quarter of its budget year. That's down 13 percent from the 164 million euros ($222 million) the company made in the same October-through-December period of 2009.

Still, Germany's largest steelmaker said that it had recorded the most orders in two years, and reaffirmed its prediction that profit before interest and taxes would jump by two-thirds to around 2 billion euros in the year that ends Sept. 30.

"We had an excellent start to the new fiscal year and we are on track to achieve our targets," said Heinrich Hiesinger, ThyssenKrupp's new chief executive. "We do believe that this positive momentum coming from the market side will sustain our business for at least the next two quarters."

ThyssenKrupp has 1,800 employees at the $5 billion plant it is building on the Mobile-Washington county line.

The carbon steel Americas unit lost 378 million euros ($511 million) on sales of 86 million euros.

Hiesinger said 60 percent of the quarter's 778 million euros ($1.05 billion) in capital spending was in Brazil and Calvert.

Hiesinger said that only one-third of the coking coal plant in Brazil is complete, and those delays mean the company has to buy more coking coal and power from outside.

"I have absolutely no doubt that we will solve those issues in coming quarters," he said. Executives told analysts that profitability should begin to improve after June.

Chief Financial Officer Alan Hippe said that the company expects losses in the steel Americas unit to ease after March. "It will take some time, but it will come," he said.

The company said it sold 115,000 metric tons of finished carbon steel in North America in the last three months of 2010. But much of that was sold outside the United States, as the firm tries to improve quality from its start-up plant to European levels.

"We don't want to damage our brand," Hiesinger said.

He said the company planned in April to start its first two hot-dip galvanizing lines, the carbon steel unit's last major process to come online.

Worldwide sales in the stainless unit rose 33 percent to 1.6 billion euros ($2.2 billion), because of rising prices. The unit swung from a 42 million euro ($57 million) operating loss to a 7 million euro ($9.5 million) operating profit.

The company's total debt has risen by 2 billion euros over the past year, in part because of the new mills, but also because the company has borrowed to gear up for increasing business. Hiesinger said management is focused on reversing that trend.

The company saw a big increase of inventories and bills owed by customers. "We would like to turn these inventories into cash during the year," Hippe said. However, he said inventories would continue to increase in the Americas as the mills gear up.